Mixed FDI outlook after Cambodian elections

Cambodia has pivoted further towards one-party rule following recent and contentious national elections, thereby threatening EU and US business links while Chinese support grows. Emerson Davis & Sebastian Shehadi report.

July’s national elections in Cambodia expanded the Cambodian People’s Party’s (CPP) control of parliament by winning all 125 seats as well as extending party leader Hun Sen’s rule to 33 years.

The trend towards one-party rule in Cambodia has raised concerns in the EU, the US and beyond. The EU has threatened to remove Cambodia’s Everything But Arms status, which allows duty-free exports into the EU single market and would drastically reduce the competitiveness of Cambodian goods, especially textiles products.

In July, the US Congress passed the Cambodia Democracy Act of 2018, imposing travel and financial sanctions against CPP leadership.

While the West hardens its stance against the CPP, it is anticipated that Cambodia will continue to pivot towards China in order to augment investment as Western funding diminishes.

“While Cambodia is still an interesting target for Western FDI, it is undeniable that China has taken the lead and is committing far more resources that the rest of the competitors,” said Antonio Martins Da Cruz, former foreign minister of Portugal.

Chinese greenfield FDI into Cambodia has grown since 2008, before which it was non-existent, according to fDi Markets. China is the leading greenfield investor in Cambodia with $3.2bn invested between 2015 and July 2018, thereby overtaking the usual leaders Japan and Malaysia, Cambodia’s long-term investment partners.

After the election result, China’s state councilor and foreign minister Wang Yi was quick to congratulate Hun Sen on his victory as well as reaffirm China’s commitment to Cambodia. He also highlighted China’s obligation to uphold Cambodia’s sovereignty. Russia, Laos, the Philippines, and Vietnam have also publicly congratulated the ruling government.

The election was called “hollow and laughable” by members of Cambodia’s banned opposition party, the Cambodia National Rescue Party (CNRP). Indeed, Cambodia’s supreme court dissolved the main opposition party in November 2017, accusing it of conspiring to overthrow the government with the help of the US.

Despite a CNRP-led boycott of the polls, voter turnout was reported to be at 83%. In addition, the Cambodian government claimed there were 50,000 foreign observers to monitor and ensure integrity. However, some of the election’s observers had a conspicuous association with the government: Hun Sen’s son, Hun Many, headed one of the groups that oversaw the ballots.

“Cambodia’s population under the age of 30 accounts for more than 50% of the total, in a country where the memories of past horrors is far too present,” says Mr Cruz. “The feat of foreign intervention is, as well, fresh in the minds of Cambodians, having faced serious threats from neighbours including foreign rule.”

In reaction to this looming fear of foreign intrusion, the CPP is consolidating power within the private sector by using regulation to crack down on independent media outlets. Most notably, the Cambodia Daily was forced to close last year after receiving a $6.3m tax bill.

In response, the EU and the US removed their funding for Cambodia’s national election. However, China stepped in to fill the funding gap, gifting $20m to the election effort.

As Mr Cruz highlights, this points to the maturing relationship between the two nations: “China has, in the past decade, become Cambodia’s preferred partner, ahead of traditional supporters such as the US or Japan.”

Cambodia provides a paradigm for the wider region, as China, Europe and the US struggle to maintain influence in south-east Asia.

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